Perfect storm for energy supplies as UK runs on empty

Keep calm and carry on. As Britain plunged into sub-zero temperatures, whipped by freezing gales and deadly Siberian snow storms, energy minister Claire Perry called for calm even as the “beast from the east” drove Britain to the brink of running out of gas.
“Do carry on using your gas heating and cooking meals as normal,” she told the public, vowing that the nation would not be plunged into cold within their own homes.
Her assurance emerged in the wake of National Grid’s first gas supply warning in almost a decade, and just hours after the Government insisted that there were no supply concerns.
But there can be little comfort in averting the unthinkable. Britain may have conquered its worst gas supply crisis in over a decade but it has laid bare the fact that Britain’s energy fate is no longer in its own hands.
UK gas production
The desire for heating drove Britain’s demand for gas up by a third from usual levels for this time of year. Market prices spiralled six fold to hit 12-year highs almost overnight.
A flurry of frantic buying across the trading desks of the country’s biggest energy companies drained stocks from the little in remaining tanks and terminals still holding gas. National Grid was forced to admit for the first time in almost a decade that supplies would fall far short of demand, unless industry tightens its gas taps.
The plan worked. Ineos, the chemicals giant owned by billionaire industrialist Jim Ratcliffe, confirmed that it was one of the industrial users that cut its gas use by a fifth at its biggest chlorine factory in Runcorn.
This was the second major gas shock this winter. A little over two months ago the UK was already reeling from the shock shutdown of the North Sea’s most important pipeline system when an explosion 1,000 miles away in Europe’s most important gas hub caused prices to spike.
For decades Britain was able to rely on a bounty of gas and oil from North Sea reserves. Its Seventies heyday meant Britain was a net exporter of gas as recently as 2005. However, as oil and gas fields have gently declined, production has fallen to less than 40pc of its peak in 2000.
Perfect storm for energy supplies as UK runs on empty

For decades Britain was able to rely on a bounty of gas and oil from North Sea reserves, but production has fallen

Leslie Garland Picture Library / Alamy
Although the energy shift has been relatively swift, Britain’s perfect storm has been brewing in plain sight for years. The UK’s reliance on imported gas has increased by almost a quarter from the year before, stoked by rising demand for heat and gas-fired power, official figures show.
Where North Sea gas once stood, is now a growing dependence on imports from Norway, Qatar and Russia. There may be a variety of sources to draw from but, when you’re playing by market rules, supplies come at a cost when they are needed most. This risk has already stoked fears that energy suppliers may need to hike household bills or fold, even as the risk of a gas shortfall recedes. Many fear the UK is barrelling towards a new energy future with little thought given to how our legacy reliance on easily available gas will adapt.
“Historically, flexible supply came from simply producing more from the North Sea, but that option has gone,” agrees Professor Michael Bradshaw, of the Warwick Business School.
“Even before this winter the industry was warning that things could get difficult. The reason being that back in June last year, Centrica Storage announced that it was closing its long-term storage facility at Rough – a depleted gas field off the Yorkshire coast,” he said.
Perfect storm for energy supplies as UK runs on empty

The UK has been gripped by snow this week

Jeff J Mitchell
Centrica, which also owns British Gas, said the ageing infrastructure was beset with technical problems, which made it unsafe to run and eye-wateringly expensive to maintain. Government gave the green light for the site closure last year, but despite the vital role it plays in securing the country’s supply, offered no new back-up plan to take its place.
“Even before then, the UK was short on storage, with capacity equivalent to 5.9pc of total consumption in 2016, compared to places like Germany, France and Italy where it covers 20pc of demand,” says Bradshaw.
“Until recently the Government did not seem phased by the closure of Rough, despite industry calls back in November to review the situation, reportedly, they are now thinking again,” he says. The gas supply shock has enlivened calls from almost every corner of the energy spectrum with a flurry of plans to safeguard the UK’s gas future, including the need for more storage.
Gas industry supporters blame the Government’s zeal for cutting carbon emissions for distracting officials from the need to support investment in new gas storage projects. Meanwhile, shale proponents believe streams of gas from fracking wells onshore would help ease price shocks too.
Perfect storm for energy supplies as UK runs on empty

Commuters made their way into work through the snow in London this week

Luke MacGregor
Matt Osborne, of energy consultancy firm Inenco, says storage is “critical” for a country that uses as much gas as Britain does.
“We remain reliant on gas, and it is essential to store as much as possible. The Government will need a strong plan of action to compensate for the loss of Rough,” he says.
Government has resisted throwing support behind gas storage facilities, which typically prove to be loss-making in the event of a mild winter. But, like any insurance policy, industry believes it would be worth the price to avoid saddling the UK with risk as it pursues a new industrial strategy.
For large-energy users, such as factories and manufacturers, energy makes up a third of costs. Industry will also take the first hit in the event of a gas emergency to ensure that homes are not disconnected.
Households may be cushioned from price hikes as energy suppliers spread the cost rises across a wide base, but, for manufacturers, energy volatility is a palpable threat to profits and the race for international investment after Brexit. Andrew McDermott, of the British Ceramic Confederation, said price rises are “a major concern” for its members including brick and tile makers.
The latest boom threatens to “damage the international competitiveness of large industrial gas users, such as ceramics, and the wider UK” at a time when the Government hopes to accelerate its industrial strategy, he says. An alliance of industry groups are preparing to confront Government on its plans to manage the country’s gas future within weeks. But others have urged it to look closer to home too.
Gas imports
Ministers have come under pressure to double-down on a pledge to make homes more efficient and help shift users to renewable heat systems, which can relieve the supply squeeze.
Despite hosting some of the most poorly insulated houses in Europe, the Government ended all taxpayer-funded energy efficiency programmes in England and halved the UK-wide obligation on energy suppliers to deliver energy efficiency improvements.
A report from green think tank E3G says public spending on warmer homes has fallen by 58pc since 2012.
Pedro Guertler, from E3G, says making buildings more energy efficient is the most cost-effective means of cutting pollution from energy infrastructure. “The priority for our infrastructure programme should be to make our homes warm while slashing energy demand and bills,” he says.
Doug Stewart, boss of Green Energy UK, adds: “Concerns over supply of natural gas, begs the question why more people don’t switch to renewable sources of green gas. The market for this has grown substantially over recent years, and it’s forecast to reach 10 million homes by 2050.”
There is no shortage of potential solutions, but the Government must warm to the realisation that there is a problem to be solved in the first place.
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